Renewable Energy Credits

When electricity is generated, the electrons are delivered into the network of transmission wires, which is often referred to as the national power grid or “the grid.” Electricity generation by both conventional methods (burning fossil fuel) and renewable resources (wind, solar, etc.) is added into the same mix and, thus, it is physically impossible to determine which consumers are getting the actual renewable commodity.

Figure 1: The Flow of Electricity

Even though electricity flows without regard to its generation, the more renewable energy that is added to the mix, the more conventional generation is displaced. This displacement can be accomplished by buying green power or RECs.

In a green power purchase, the consumer is paying for both the commodity of electricity and the environmental attributes of renewable generation, which generally have high production costs associated with it. In contrast, when a consumer buys a REC, they are purchasing only the environmental attributes of renewable generation. This concept of breaking renewable energy into two products, known as unbundling, is the idea that the “green” resides in the environmental attributes rather than in the electricity. The simplicity of these transactions makes it easier for consumers to support renewable energy. This comparison is illustrated in Figure 2: